Why Is Extended Stay America (STAY) Down 0.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Extended Stay America (STAY). Shares have lost about 0.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Extended Stay America due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Extended Stay Q4 Earnings & Revenue Beat Estimates
Extended Stay reported better-than-expected earnings for the fifth straight quarter in fourth-quarter 2018. Following the quarterly results, shares of the company gained 3.3% in after-hours trading on Feb 27. However, in the past six months, the stock has lost 13% compared with the S&P 500’s 3.6% decline.
Adjusted earnings came in at 21 cents per share, outpacing the Zacks Consensus Estimate a penny. The bottom line also grew 9.2% year over year owing to a drop in effective tax rate as well as lower depreciation and general and administrative expenses. Share repurchases also provided a boost to earnings.
Detailed Revenue Discussion
Total revenues of $289.7 million in the fourth quarter marginally surpassed the Zacks Consensus Estimate of $288 million. However, the top line declined 4.2% on a year-over-year basis due to asset dispositions, which overshadowed increase in RevPAR as well as total room and other hotel revenues. On a comparable company-owned basis, total room and other hotel revenues rose 0.9% in the quarter under review.
Comparable system-wide RevPAR increased 0.9% on a year-over-year basis. The uptick was driven by a 310 basis points (bps) improvement in occupancy, marginally overshadowed by a 3.4% decline in average daily rate (ADR). Also, total company-owned RevPAR improved 3.9% and comparable company-owned RevPAR rose 0.7% to $48.97 in the fourth quarter.
Behind the Headlines
Hotel operating margin in the quarter was 51.1%, reflecting a 190-bp decline from the prior-year quarter. Increase in payroll, reservation, marketing and maintenance expenses led to the downturn. Net income totaled $39.4 million compared with $40.2 million in the same period in 2017, marking a decline of 1.9%. The decline was due to cycling an $11.9 million gain on asset dispositions in the prior-year quarter and contraction in hotel operating margin, which overshadowed lower effective tax rate, reduction in depreciation and general and administrative expenses.
Cash and cash equivalents as of Dec 31, 2018, was $287.5 million compared with $113.3 million at the end of Dec 31, 2017. Total shareholders’ equity at the end of the fourth quarter was $1,310.6 million. As of Dec 31, 2018, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $2,402.6 million, down from $2,541.9 million at the end of Dec 31, 2017.
Extended Stay invested roughly $61.7 million as capital expenditures in the quarter under review. On Feb 27, the company’s board of directors announced cash distributions totaling 22 cents per share, which is payable Mar 28, 2019, to its shareholders of record as of Mar 14, 2019. Additionally, the company has bought back 0.3 million shares for $5.7 million during the fourth quarter.
Extended Stay expects total revenues in the range of $1,230-$1,250 million. Moreover, comparable system-wide RevPAR is envisioned in the flat to up 2%. Adjusted EBITDA is projected between $560 and $580 million. Capital expenditure for the year is anticipated to be $310-$360 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.28% due to these changes.
Currently, Extended Stay America has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Extended Stay America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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